Analyzing a Bond Amortization Scheduale: Reporting Bonds Payable Stein Corporati

Question

Analyzing a Bond Amortization Scheduale: Reporting Bonds Payable

Stein Corporation issued a $1,000 bond on January 1, 2017. The bond specified an interest rate of 9 percent payable at the end of each year. The bond matures at the end of 2019. It was sold at a market rate of 11 percent per year. The following sceduale was completed:

Required:

1. What was the bond's issue price?

2. Did the bond sell at a discount or a premium? How much was the premium or discount?

3. What amount of cash was paid each year for bond interest?

4. What amount of interest expense should be shown each year on the statement of earnings?

5. What amount(s) should be shown on the statement of finiancialposition for bonds payable at each year-end? (For 2019, show the balance just before repayment of the bond.)

6. what method of amortization was used?

7. Show how the following amounts were computed for 2018: (a) $106, (b) $16, and (c) $982.

8. Is the method of amoritizationthat was used preferable? Explain why.

Cash Paid Interest Expense Amoritization Carrying Amount January 1, 2017 (issuance) $ 951 End of Year 2017 ? $ 105 $ 15 966 End of year 2018 ? 106 16 982 End of year 2019 ? 108 18 1,000

Explanation / Answer

Q1. Issue price: $ 951 Q2. Total Discount on bonds: 1000-951 = 49 Q3. Interest paid in cash: 105-15 = 90 Q4. Interest expense for the year: 2017 105 2018 106 2019 108 Q5. Bonds payable Liability at end of 2019 (before payment) Bonds payable (Gross) 1000 Less: Unamortized Discount 18 Bonds payable (Net) 982 Q6. Effective Interest Method. Q7. Book value of Bonds in Beginning of 2018 966 Interest expense at 11% (966*11%) 106 Cash interest to be paid (1000*9%) 90 Discount amortized 16 Book value at the end of 2018 982 Req 8. Effective Interest method used is preferable for the reason that the interest is computed on effective book value at the beginning of each year.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.